COMMENT: Is history is about to repeat itself in Czech nuclear tender?

By bne IntelliNews February 4, 2013

James de Candole in Prague -

When the president and CEO of Westinghouse, just days after the Czech presidential election concluded on January 26, states in public in Prague that the choice of prime contractor for the expansion of the Temelin nuclear power plant could never be fair for as long as the decision is treated as one between "east" and "west", you can assume that he is worried.

And when he reinforces his point by suggesting that the head of state of the country to which he is trying to sell, is a mouthpiece of his Russian competitor, you know he is in serious trouble.

The US Embassy in Prague must be as worried as Westinghouse. Embassy officials are no doubt digging out diplomatic cables to Washington from the time when the Czech president-elect was prime minister, scrutinizing the details of another big tender that went wrong for the Americans, and wondering whether history is about to repeat itself. It is.

This town is big enough for the both of us

Between 1998-2002, today's president-elect, Milos Zeman, was the leader of a minority Social Democrat (CSSD) government, secured with the support of its sworn ideological enemy, the Civic Democrats (ODS), then led by outgoing President Vaclav Klaus, in a blissfully happy arrangement that came to be called, without a hint of irony, "The Opposition Agreement".

Zeman's premiership was dominated, at least in the realm of defence, by the decision to procure supersonic fighter jets. In May 2001, four of the five bidders to supply the Czech Republic with supersonic fighters, including two US bidders, Boeing and Lockheed Martin, pulled out on the grounds that the process was being rigged in favour of BAE Systems/Saab and their JAS-39 Gripen.

Most of us assumed at the time that such an impressive vote of no-confidence in the selection process spelt the end of the tender. We were wrong. The fact that there was only one bidder now left, far from deterring the government, actually emboldened it.

A year later, the Zeman government approved the purchase of 24 Gripen fighters. All that remained between the middleman on the deal, Richard Hava, and his multi-million-dollar success fee, was a vote in parliament on the funding of the acquisition. Without parliamentary approval of a state-guaranteed bank loan, the deal would collapse. The pressure on the government - and on BAE Systems - to secure 101 votes in the 200-seat lower house of parliament was intense.

Allegations that BAE Systems funneled bribes to Czech politicians in the build-up to this critical parliamentary vote remain unproven in a court of law. This may be because the allegations are unfounded or because BAE Systems settled out of court with the British and US fraud authorities at a cost of hundreds of millions of dollars to the firm, thereby removing the need for any further legal action - at least in the two jurisdictions that matter to BAE Systems.

Bribes or no bribes, the Zeman government lost the loan vote by just one vote in June 2002. And the deal to buy 24 new jets collapsed. Poor Hava!


President-elect Zeman and his ageing cronies, exemplified by Miroslav Slouf, are now back in business. Things may have changed for the better over the last decade, and the nuclear energy industry may not be as corrupt as the armaments industry.

Nevertheless, I reckon that Temelin is heading the way of the supersonic fighter tender a decade ago, and for the same reasons: An industry in decline and displaying an unhealthy dependence upon favourable treatment granted by easily corruptible foreign governments.

Last week, I attended an energy conference in Prague at which Westinghouse and Atomstrojexport each set out its stall. There was much talk of the passive safety features of each firm's technical solution. But there was no talk whatsoever of any measures being taken by CEZ, as the customer, actively to oblige the winner to disclose the true owners of the subcontractors it intends to hire to complete the work.

The nuclear power industry is, like the arms industry, not known for its probity. In recent memory in the Czech Republic, we have witnessed the ludicrous example of CEEI, which I have written about ad nauseam. Once again and in brief, Europe's leading manufacturer of spent nuclear fuel casks and designer of the buildings in which they are housed, a German business called GNS/WTI, made contractual commitments to sell the complete documentation of a brand new Bavarian spent fuel storage facility to a shell company represented by a lawyer in Liechtenstein, a former prime minister of the principality, although only for three months and many years ago.

CEEI at the time of the agreement was managed by a certain Martin Peter, the owner of a PR firm who had once built stage sets for an ageing singer called Helena Vondrackova, who endorsed Milos Zeman - or was it Lucie Bila who backed him? Anyway, both sang for Mr and Mrs Klaus, which is the important thing.

Peter has fewer tattoos than the failed presidential candidate Vladimir Franz (who endorsed Milos Zeman in the second round). Even so, he is now serving time in a Moravian prison for assaulting the man who took his job at CEEI, a golfing ODS lawyer from Moravia, Dr Jiri Kovar. And Kovar served time as the right-hand man of the prime minister 20 years ago (Vaclav Klaus), before being kicked out of office after his party colleagues accused him of trying to blackmail them. Two years ago, he ran unsuccessfully for president of the Czech Golf Federation. Given whom he attacked, it is improbable that Martin Peter was part of the recent presidential amnesty, although you might like to double-check that.

Martin Peter's CEEI was the company that CEZ CEO Daniel Benes chose in 2008 to build, at a fabulous price, the Temelin spent fuel storage facility, on the grounds that it was the only company bidding for the work that had the right to use the German know-how (which was never used).

It appears that the agreement between the German firm and the Liechtenstein shell company was nothing more than a cunning ruse to lend plausibility to the preferred choice of Benes, with the Germans playing their part by providing his preference with the paper credentials to bid - and to win.

In spite of frequent asking, no one has been able to reveal the beneficial owners of CEEI. And there is nothing in Czech law, as far as I know, to prevent the same thing happening again.

The winner of the Temelin contract may subcontract as much work as it likes to firms like CEEI if it chooses. Maybe the golfing Moravian lawyer is hoping for a second tee at CEZ's nuclear hole? And why not? He has a great handicap after all!

It will not have escaped your notice that the most important part of the Czech state to decide upon Temelin is not unconnected to that part which decided CASA, Pandur and other fabulously priced defence deals of the last decade. The key decision-maker for Temelin is, of course, the majority shareholder of the state-controlled CEZ, represented by none other than Finance Minister Miroslav Kalousek.

And then there is CEZ's top management, represented by Daniel Benes as CEO and Martin Roman as chairman of the supervisory board. All three gentlemen have been directly and indirectly linked to enough scandals to undermine any confidence one might once have had in their probity.

Who needs economics when you have a Special Envoy?

In the case of the supersonics, there was no independent oversight because, as Kalousek explained last summer (when trying to stop ex-defence minister Vlasta Parkanova from being arrested), this is all about national security, and national security does not require value-for-money justifications.

When the prime minister (or was it the outgoing defence minister?) said recently that we need Gripens to protect Temelin, the logical loop was closed. Gripen to protect Temelin; Temelin to justify Gripens! Temelin is geopolitics, and geopolitics requires no economic justification. It's the trump card.

But Temelin is different to Gripen in one respect, I hear you say! There was no Special Envoy for supersonics. Vaclav Bartuska's task is to ensure that Temelin is as clean as a whistle. Good. And who needs economics when you've got geopolitics?

And then there wasn't Areva

The peremptory disqualification of the French bid for Temelin smells of Gripen. As I mentioned earlier, back in 2001, we all thought that the credibility of the supersonic tender, and the tender itself, was buggered when all the other bidders pulled out because of doubts about its fairness. Not a bit of it! Gripen went on to win 14 leased jets rather than 24 bought, but still a win.

So much for the past. May we expect the same scenario for Temelin? The French have been scrubbed on a legal technicality by two prominent local lawyers, Karel Muzikar Junior and Radek Pokorny, hired to handle the Temelin brief by CEZ.

I would bet my last dollar that the Americans will be next. The issue now is whether they will jump before they are pushed. The comments by Westinghouse's CEO in Prague last week suggest that they are getting ready to jump. And that will leave the Russians, for whom transparency is an affectation adopted in London's High Court in legal battles among themselves.

In brief, then, we might expect the Temelin affair to go like this: The Americans will pull out, citing a lack of transparency; the government and president will ensure that CEZ selects the Russian bid; the Czech parliament, under intense pressure from the government, the president and the Russians, will be asked to approve the funding for the construction of the two new MIR.1200 reactors, either by means of a state-guaranteed bank loan or a photovoltaic-like subsidy; and work will begin.

But whether it will be completed is another matter. The Russians are currently suing Bulgaria for abandoning the Belene nuclear power plant. It is estimated that approaching €1bn has already been spent on local consultants and local equipment. So not everyone is a loser!

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